Two-way selection between flat-fee attorneys and litigants: theoretical and empirical analyses

Flat (or fixed) attorney fees, despite their popularity, have been rarely studied by theorists and empiricists. This article builds informal theoretical models to describe the incentive schemes of rational attorneys and rational litigants. Rational attorneys who collect flat fees in advance will work sufficiently hard on the cases at hand only to keep their reputation, and will decline representation less frequently than contingent-fee attorneys. Rational litigants would seek representation and select flat-fee attorneys mainly based on how well an attorney can increase the probability of winning. We create three unique survey data sets: one on attorneys with 834 observations; one on litigants with 2705 observations; and one on 1224 randomly selected adults—all in Taiwan. Empirical analyses of these data reveal that flat-fee attorneys in Taiwan turned down about 10% of potential clients, mainly because of low expected win rates. Such attorneys attract clients largely based on their reputation. Inexperienced litigants rely on their social network for information and attorney referrals. As litigants gain experience, they are more inclined to focus on factors that are more likely to maximize their net private benefits.